The Delaware Court of Chancery recently held that BuzzFeed was not required to arbitrate stock conversion claims brought by its former employees following Buzzfeed’s 2021 SPAC merger. Vice Chancellor Zurn granted BuzzFeed and its officers and directors an anti-arbitration injunction and rejected Plaintiffs’ argument that the Court of Chancery lacked subject matter jurisdiction over the claims. In doing so, the court offered a thoughtful application of contract law and law on arbitrability to a post-SPAC transaction dispute.
In 2021, BuzzFeed entered into a SPAC merger in which its stock automatically converted into an equivalent class of stock in a post-SPAC BuzzFeed entity. After the transaction, the post-SPAC entity announced an IPO. The IPO offered a different class of stock than the stock that had been issued to employees of the pre-SPAC BuzzFeed entity. Certain former employers claimed that they were unable to participate in the IPO because they were not able to timely convert their stock to tradeable shares. The former employees then filed two arbitrations based on their employment agreements with the pre-SPAC BuzzFeed entity, alleging that their inability to participate timely in the IPO had caused them millions of dollars in losses.
BuzzFeed and certain of its officers and directors filed for injunctive relief in the Delaware Court of Chancery, seeking to enjoin the arbitrations and declaratory relief holding that the employees were obligated to follow the forum selection clause in BuzzFeed’s charter and bring their claims in the Delaware Court of Chancery. Plaintiffs moved for summary judgment, and the employees moved to dismiss the complaint, claiming that the Court lacked subject matter jurisdiction and personal jurisdiction over the nonresident employees.
The Court of Chancery first rejected the employees’ argument that it lacked subject matter jurisdiction or personal jurisdiction over the employees. As to subject matter jurisdiction, it found that none of the Plaintiffs—the post-SPAC BuzzFeed entity or the directors or officers—were parties to the employee agreements between the employees and the pre-SPAC BuzzFeed entity. As a consequence, none could be bound by the arbitration provisions. Further, the relevant arbitration clause only applied to “any and all claims or disputes arising out of [the employment agreement] and any and all claims arising from or relating to [the employees’] employment with [the pre-SPAC BuzzFeed entity].” The Court of Chancery thus concluded that none of the Plaintiffs had demonstrated an intent to arbitrate claims regarding the post-SPAC entity, and therefore the arbitration provisions also did not govern the Plaintiffs’ claims. As to personal jurisdiction, the Court found that the post-SPAC BuzzFeed entity’s charter encompassed Plaintiff’s claims, and it held that the employees had failed to demonstrate that it would be unreasonable or unjust to apply the charter to them.
The Court of Chancery next turned to Plaintiffs’ motion for summary judgment. The Court found that, for the same reasons that it had denied the employees’ motion to dismiss for lack of subject matter jurisdiction, it should grant in part PlaintiffsPlaintiffs’ motion for summary judgment. It found that Plaintiffs were entitled to declarations that (i) the Court of Chancery had authority to decide whether the Plaintiffs’ claims are arbitrable, and (ii) the Plaintiffs’ claims were not arbitrable. Because forcing the Plaintiffs to arbitrate under a provision to which they were not bound would cause them irreparable harm, the Court held that the arbitrations should be permanently enjoined.
Finally, the Court of Chancery denied Plaintiffs’ request for a declaration that the employees’ claims must be brought in that Court pursuant to the forum selection clause in the post-SPAC charter. The Court found that because the arbitrations had been enjoined, there was no present dispute between the parties, and issuing such a declaration would therefore constitute an improper advisory or hypothetical opinion.
The BuzzFeed decision offers a useful illustration of how Delaware courts will apply principles of contract interpretation and jurisdictional analysis to claims arising out of SPAC transactions. Because the SPAC transaction resulted in a new entity and corporate formalities had been followed, the Court found that the post-SPAC BuzzFeed entity should be treated as a separate corporate entity, distinct from the old BuzzFeed entity. Likewise, notwithstanding a series of creative arguments by the employees to avoid application of the post-SPAC BuzzFeed entity’s charter (and forum selection clause), the Court of Chancery determined that the charter governed stockholder claims, including the claims of the employees following their share conversion.